Companies need to remain vigilant in the face of escalating fraud

E&Y’s 2012 Global Fraud Survey indicates that tolerance for unethical conduct has risen in recent years

In this rapidly changing global regulatory environment, fraught with tempestuous economic conditions, it can be difficult for many companies to persevere and continue to grow while remaining ethically above board and compliant.

To this end, Ernst & Young (E&Y) yesterday released the results of its 2012 Global Fraud Survey. The study, which features findings on fraud, bribery and corruption, gathered responses from more than 1,700 executives across 43 countries, including heads of legal, compliance and internal audit departments and chief financial officers.

The 12th annual Global Fraud Survey found that the record levels of fines, penalties and profit disgorgements secured by the U.S. Department of Justice and Securities and Exchange Commission in 2011 raises both the perceived and actual cost of noncompliance. Because of this, E&Y says that companies and their boards must weigh the risks associated with varying degrees of compliance enforcement within their organizations. And moving into new markets definitely introduces additional risks.

The survey also found that corporate boards and audit committees continue to face substantial challenges in tackling fraud, bribery and corruption, and that many companies are failing to successfully mitigate the risks they present. Dovetailing with this, E&Y says that boards also are struggling to effectively absorb the massive amounts of compliance information placed before them.

The study suggests that corporate boards and compliance managers consider the following when responding to these challenges:

  1. They must ensure effective lines of communication with a broad range of roles within the business. This will enable boards to question the information that they are given.
  2. They can make improvements to focus compliance reporting to the board.
  3. Boards must make sure that they are asking the right questions. These could include:

• Does management at headquarter level understand local risks, and have strategies been developed to deal with these specific risks?

• Can management demonstrate the contemporaneous effectiveness of its anti-corruption compliance efforts to its stakeholders?

• Does the company know how many third parties and agents represent it, particularly in dealing with those that could be considered “government officials”?

• Is management making the best use of the latest forensic data analytics techniques to monitor compliance in real time?

• Assuming that contracts with third parties normally contain audit rights, how many times has the company conducted an audit principally to gain comfort around bribery and corruption risk?

• Does the company have clear criteria to guide it with respect to how extensive pre- or post-acquisition anti-corruption due diligence should be, or whether to conduct it at all?

Should companies make a concerted effort to target areas of potential risk exposure, and management lead by example, E&Y says companies should be able to properly balance the priorities of growth and ethical business conduct.

To read the complete survey, visit Ernst & Young’s website.

For more from InsideCounsel, read:

DOJ to pursue more corporate fraud cases

34% of employees have express knowledge of workplace misconduct

SEC filed record number of cases in 2011

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